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Investment Strategies: You don’t need a personal financial advisor

Posted February 19, 2008

"I don't want to tar all advisors with the same brush. Some actually give good investment advice at a reasonable cost. But, as my buddy Scott Whitmore at Morgan Stanley is fond of saying, 'It's 97% of investment advisors that give the other 3% of us a bad name.'" — Alex Green

by Alex Green

Baltimore – (TFN): If you need bypass surgery, you should find the most qualified surgeon available. If you're getting sued, you should hire the best defense attorney in town.

Likewise, some people argue that if you're planning to live well in retirement, you should hire the most expensive financial advisor you can find.

I'm not one of those people.

Last week I was a speaker at the World Money Show at the Gaylord Palms in Orlando. (Over 14,000 people registered to attend.) And while I spoke on everything from momentum investing to insider buying, I got the biggest response from a talk I gave Wednesday afternoon called "The Gone Fishin' Portfolio: Get Wise, Get Wealthy… and Get On With Your Life," about how you can effectively manage your long-term investment portfolio yourself.

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My basic premise was this. If you're an investor who is seeking long-term capital gains, it's crazy to pay a lot of money for a high-priced financial advisor who gives you an economic outlook and short-term market forecast with all sorts of commission-based solutions attached.

Nor do investors generally need a "personal investment plan" based on their individual circumstances…

Investment Strategies: A growth portfolio is designed to do one thing

A growth portfolio is designed to keep you from outliving your money. It should give satisfactory returns for a 25-year-old just beginning an investment plan, as well as a 65-year-old whose retirement may realistically live three decades or more… before he goes to that big retirement home in the sky.

As the fund manager John Templeton once said, "For all long-term investors, there is only one objective - maximum total return after taxes."

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Of course, some advisors are taking generic advice and selling it as customized plans. For that reason, whenever I hear an investment advisor tell a client that he is drawing up a long-term growth portfolio based on that client's "unique profile," I'm invariably reminded of the comedian who tells his audience, "Never forget that you're special… just like everyone else."

I don't want to tar all advisors with the same brush. Some actually give good investment advice at a reasonable cost. But, as my buddy Scott Whitmore at Morgan Stanley is fond of saying, "It's 97% of investment advisors that give the other 3% of us a bad name."

Investment Strategies: Financial advisors hamstrung by regulations

Part of the problem, too, is that investment advisors have a lot of overly burdensome regulatory requirements. Brokers and other investment advisors are supposed to "know their customers." That means they have to ask a lot of nosy questions about your financial circumstances. But that doesn't mean you need to pay for a customized solution.

And, quite frankly, this is generally true for income-oriented investors, as well as growth-oriented ones. If you want to make sure your portfolio doesn't kick the bucket before you do, look at expected asset returns, not your personal circumstances.

Need proof? Jim Otar is a certified financial planner, independent advisor and the author of "High Expectations and False Dreams: One Hundred Years of Stock Market History Applied to Retirement Planning."

In June 2002, he wrote a column on "Client Strategies" for Financial Planning, a journal for investment professionals. He says that, "The optimum asset allocation for an income portfolio has nothing to do with your client's risk tolerance, his investment knowledge or many other countless questions that your clients are forced to answer during your initial interview. Other than fulfilling the regulatory requirements, the ritual of risk assessment has no significance to the optimum asset mix."

In short, if your goal is long-term growth - and you want to minimize the time you spend fooling with your investments - you can get satisfactory returns by doing the same thing the country's top institutional investors are doing: asset allocating, rebalancing and keeping a sharp eye on expenses and taxes.

The right asset mix is the key, not fancy advice with high fees attached.

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Posted by Alex Green · Filed Under Investment Strategies 

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